Compromise on taxes seen likely in Mass. budget

This fall, new insurance markets called exchanges will open in each state, marking the long-awaited and much-debated debut of President Barack Obama’s health care overhaul.

So it wasn’t surprising that Patrick was among the first to concede that his ambitious budget request that calls for major adjustments in the income and sales taxes to support new spending on education and transportation may not survive the upcoming legislative process intact.

By the time the governor puts his signature on the budget around July 1, history suggests that it could bear little resemblance to the plan he rolled out with considerable fanfare this past week.

The reason is not partisan gridlock, nor any gaping philosophical divide. After all, Democrats hold an overwhelming majority in both chambers and leaders, for the most part, have enjoyed a solid working relationship with the Democratic governor over the past six years. It has resulted in noteworthy laws as diverse as pension and health care payment overhauls and the legalization of casino gambling.

But the Legislature’s independent streak, especially when it comes to taxes and spending, is well-documented.

In 2009, when the recession battered state revenues, Patrick included in his budget request a series of targeted tax increases, including hiking the gasoline tax 19 cents per gallon and raising taxes on soda, candy and alcohol. But lawmakers rejected most of his proposals and substituted a 25 percent increase in the sales tax.

Patrick threatened to veto the sales tax hike but ultimately accepted it after the Legislature agreed to other measures he supported, including an overhaul of the state’s transportation bureaucracy.

Last year, Patrick proposed a 50-cents-per-pack increase in the cigarette tax that was dead on arrival in the Legislature after Speaker Robert DeLeo announced he would not support any new taxes.

Patrick’s $34.8 billion budget request for the next fiscal year calls for hiking the income tax rate from 5.25 to 6.25 percent, while rolling back the sales tax from 6.25 to 4.5 percent, which would result in a net revenue gain of $1.2 billion. He said the changes would make the state’s tax code fairer and actually reduce taxes for many lower- and middle-income taxpayers.

Unlike a year ago, legislative leaders are not ruling out tax increases. Still, they’ve been notably cautious in their public response to Patrick’s plan. Senate President Therese Murray told reporters the devil would be in the details while DeLeo said only it would give ‘‘food for thought’’ to the House.

‘‘It’s unlikely that something this sweeping will make its way through the Legislature,’’ said Michael Widmer, president of the nonpartisan, business-backed Massachusetts Taxpayers Foundation.

Widmer, a longtime observer of the legislative process, said lawmakers face a dilemma knowing that failure to raise new revenues could force additional budget cuts on top of the billions of dollars in spending reductions over the last four years. At the same time, however, they risk angering constituents by voting for a tax hike when many in their districts are still reeling from the impact of the recession.

Even some who strongly support the governor’s budget, such as Noah Berger of the Massachusetts Budget and Policy Center, acknowledge the likelihood that the tax plan will be altered in the months ahead.

‘‘There are a lot of different ways you could put together a package that could achieve the basic objectives (of) raising enough money to be able to both avoid deep cuts that would hurt families, but also make investments in things that really grow our economy,’’ said Berger.

‘‘You could imagine other mixes of taxes that could do the same thing,’’ he added.

One possibility, Berger said, would be to eliminate more deductions and loopholes that favor wealthier taxpayers.

Widmer suggested that lawmakers might seek a more ‘‘modest’’ tax package, perhaps one that focuses exclusively on raising money for the state’s ailing transportation network through higher gasoline taxes or other targeted revenues.

Patrick will not seek a third term in 2014 and while he may harbor future political aspirations, his current status may give him more freedom to act on taxes than legislators who must face voters again next year.

In his budget announcement, he said the ability to make new investments in education and transportation hinge on the various budget threads ‘‘hanging together.’’ Simply put, you can’t have the new spending without new revenues.

But he understands that compromise may be necessary.

‘‘I don’t think there is anything I’ve sent down the hall into the Legislature that has come back exactly the way that I’ve asked,’’ Patrick said. ‘‘I get that.’’